Every month your employer deducts a slice of your salary before it reaches your account. That deduction is TDS — Tax Deducted at Source — and your employer is legally required to do it under Section 192 of the Income Tax Act. Understanding how TDS on salary works helps you verify your payslip, choose the right tax regime, and — if your gross salary is ₹12.75 lakh or below — potentially pay zero tax for FY 2025-26.
What Is TDS on Salary? (Section 192 Explained)
TDS on salary is the income tax your employer deducts every month from your pay and deposits with the government on your behalf. Section 192 of the Income Tax Act mandates this for every employer who pays a salary that is taxable in India.
Unlike TDS on other payments (where a fixed percentage applies), Section 192 has no flat rate. Instead, your employer estimates your total income for the financial year, calculates the approximate annual tax, and divides it equally across the remaining months of that year. The result is your monthly TDS.
TDS changes if your salary changes mid-year, if you join a new employer, or if you submit investment proofs.
New Tax Regime vs Old Tax Regime: Which Governs Your TDS?
For FY 2025-26 (AY 2026-27), the new tax regime is the default. Unless you actively opt for the old regime by informing your employer, your TDS will be calculated under the new regime.
New Tax Regime Slabs — FY 2025-26
| Annual Income | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Key benefit: Standard deduction of ₹75,000 plus a Section 87A rebate of up to ₹60,000 makes the effective tax zero for gross salaries up to ₹12.75 lakh.
Old Tax Regime Slabs — FY 2025-26
| Annual Income | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
The old regime retains deductions: Section 80C (₹1.5 lakh), HRA, home loan interest (₹2 lakh), Section 80D (health insurance), and NPS. If your total deductions exceed ₹3–4 lakh, the old regime often saves more.
How Your Employer Calculates TDS — Step by Step
- Estimate your annual gross salary — includes basic pay, DA, allowances, bonus, and any other taxable component.
- Subtract the standard deduction — ₹75,000 under the new regime; ₹50,000 under the old regime.
- Subtract declared deductions (old regime only) — investments declared via Form 12BB: 80C, HRA, home loan interest, 80D.
- Arrive at estimated taxable income — apply the relevant slab rates to calculate annual tax.
- Apply Section 87A rebate — if taxable income is up to ₹7 lakh (old regime) or ₹12 lakh (new regime), the rebate reduces tax to zero.
- Add education cess — 4% on the calculated tax.
- Divide by months remaining in the financial year — this is your monthly TDS.
If you join mid-year or your salary is revised, your employer recalculates TDS and adjusts future deductions accordingly.
Zero Tax on Salaries Up to ₹12.75 Lakh — Here Is the Maths
Many salaried employees in India do not need to pay any income tax in FY 2025-26, even without making a single investment:
| Gross salary | ₹12,75,000 |
| Less: Standard deduction | ₹75,000 |
| Taxable income | ₹12,00,000 |
| Tax under new regime | ₹60,000 |
| Section 87A rebate | ₹60,000 |
| Net tax payable | ₹0 |
If this is your situation, ensure your employer knows you are in the new regime — no investment declarations required.
Form 12BB: Declaring Investments to Reduce TDS
If you opt for the old regime, you must submit Form 12BB to your employer at the start of the financial year. This declaration informs your employer of your planned tax-saving investments so they can lower your taxable income before calculating monthly TDS.
Form 12BB typically covers:
- House Rent Allowance (HRA): landlord name, address, rent amount, and PAN if annual rent exceeds ₹1 lakh.
- Leave Travel Allowance (LTA): claimed journeys within India.
- Section 80C investments: PPF, ELSS, LIC premium, EPF, home loan principal.
- Home loan interest: lender name, address, account number, and interest certificate.
- Other deductions: Section 80D health insurance, 80G donations, NPS under 80CCD(1B).
Submit proofs by your employer’s deadline (usually January–February). If you miss it, your employer will reverse the deductions and deduct higher TDS for the remaining months.
What Is Form 16? Your Right to a TDS Certificate
Form 16 is the TDS certificate your employer must issue to you after the end of each financial year. It is your proof that TDS was deducted and deposited with the government — and it is essential for filing your Income Tax Return (ITR).
Form 16 — Part A
Part A is generated from the TRACES portal and contains your PAN, employer PAN and TAN, and a quarter-by-quarter summary of TDS deducted and deposited.
Form 16 — Part B
Part B is prepared by your employer and contains a detailed salary breakup, exemptions claimed, deductions under Chapter VI-A, taxable income, and the full TDS computation for the year.
Deadline and Employer Penalty
Your employer must issue Form 16 by 15 June of the following year — so Form 16 for FY 2025-26 must be issued by 15 June 2026. Delay or failure to issue attracts a penalty of ₹100 per day under Section 272A(2)(g).
Note for Tax Year 2026-27: Under the Income Tax Act 2025, Form 16 has been renumbered as Form 130 effective 1 April 2026. For FY 2025-26, your employer will still issue Form 16 as usual.
TDS Deposit Deadlines Your Employer Must Meet
| Month of Deduction | Deposit Deadline |
|---|---|
| April to February | 7th of the following month |
| March | 30th April |
If your employer fails to deposit TDS on time, they face interest at 1.5% per month. You are not personally penalised, but a mismatch in your Form 26AS may cause issues when filing your ITR.
How to Check Your TDS on Form 26AS
Form 26AS is your consolidated tax statement, available free on the Income Tax portal (incometax.gov.in). It shows TDS deducted by your employer, TDS deposited against your PAN, advance tax paid, and any tax refunds received. Always cross-check it against Part A of your Form 16 before filing your ITR.
What to Do If Too Much TDS Was Deducted
Over-deduction happens when your employer does not account for all your deductions, or if you change regimes after TDS was calculated. File your ITR for AY 2026-27 and the excess TDS is refunded directly to your bank account, usually within weeks of ITR processing.
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Frequently Asked Questions
What is Section 192 of the Income Tax Act?
Section 192 requires every employer to deduct TDS from the salary of any employee whose estimated annual income exceeds the basic exemption limit. The employer calculates estimated tax for the year and deducts it proportionally each month.
Is TDS on salary mandatory for all employees?
TDS is mandatory only if your annual salary exceeds the basic exemption limit — ₹4 lakh under the new regime for FY 2025-26. If your income is below this limit, your employer should not deduct any TDS.
What is the TDS rate on salary in India 2026?
There is no single fixed rate. TDS is calculated based on income tax slabs applicable to your estimated annual income under whichever regime you choose. Effective rates range from 0% to around 30% depending on income.
Can I avoid TDS on salary legally?
Yes. If your gross salary is ₹12.75 lakh or less under the new regime, your net taxable income after the ₹75,000 standard deduction falls under ₹12 lakh, and the Section 87A rebate zeroes out your tax. No investments needed.
What is Form 16 and when do I get it?
Form 16 is a TDS certificate your employer issues after the financial year ends. For FY 2025-26, the deadline is 15 June 2026. Part A covers quarterly TDS deposits; Part B covers your salary and deduction details for ITR filing.
What is Form 12BB?
Form 12BB is the investment declaration you submit to your employer at the start of the year to inform them of your planned deductions — 80C investments, HRA, home loan interest. It is relevant only if you opt for the old tax regime.
What if my employer does not give me Form 16?
Your employer is legally obligated under Section 203 of the Income Tax Act to issue Form 16 if TDS was deducted. Non-issuance attracts a ₹100 per day penalty. You can also download TDS details from Form 26AS on the Income Tax portal.
Can I change my tax regime mid-year?
No. Once you inform your employer of your regime choice at the start of the financial year, you cannot switch mid-year for TDS purposes. You can, however, choose a different regime when filing your ITR.
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